With Trump’s return to office, how do his policies affect businesses in Charlotte?
With Donald Trump returning to the White House, Charlotte business leaders are looking at how his potential policies will affect various sectors, and how quickly.
Some of the major policies businesses are assessing are looser banking regulations, a possible extension of the Tax Cuts and Jobs Act, tariff increases and immigration reform.
Let’s get into the details.
Banking regulations
Charlotte is a banking capital and Trump’s return to office bodes well for the sector in terms of potentially looser regulations.
“The banking regulations and the capital requirements for banks are going to go down,” said Matthew Metzgar, a clinical professor of economics at UNC Charlotte. “In the short term banks will benefit and I think Charlotte will benefit from that as well.”
One of the biggest impacts will be on the possible decrease in capital requirement. This means what percentage of funds banks must have on hold versus how much they loan out. That minimum is currently about 4.5%, according to the Federal Reserve Board.
Many of the banking regulations Trump proposes to change were put in place by former President Barack Obama in 2010. Obama implemented stricter rules to prevent another financial crisis seen in 2008.
These rules are another balancing act similar to the tax cuts, Metzgar said.
There is some sort of optimal amount of regulation,” Metzgar said. “If regulations are too loose, banks could engage in risky behavior and end up needing bailouts. But if it’s too tight, then it constrains their growth and their ability to compete.”
Corporate tax rates. Research and development credits.
The Tax Cuts and Jobs Act, enacted in 2018 and better known as the Trump tax cuts, was a major reform of the tax code that, in short, reduced tax rates for people and businesses.
Some portions of the act have already ended, while others were set to expire at the end of 2025.
Since it was a Trump enacted policy, it’s likely the policy will be reinstated with some changes.
“It’ll probably be modified to cut taxes in a number of different areas,” Metzgar said. “The exact details of the plan will obviously get fleshed out but it seems to be a big priority. As far as beneficiaries, businesses and potentially workers can benefit from that… In general and through basic economic theory, if you cut taxes then you tend to have economic growth.”
Two portions of the act that are on the minds of Charlotte business leaders are the domestic research and development tax credits and the corporate tax rate, according to Joe Bost, the chief advocacy officer at the Charlotte Regional Business Alliance.
Businesses were allowed to fully deduct domestic research and development investment costs prior to the tax act, meaning any costs associated with business innovations could be written off immediately.
The tax act required companies to amortize, or gradually write off those development costs, leading to more upfront costs for companies looking into business improvements.
Businesses are hoping for a shift back to full expense capabilities.
“Whether you’re a big business, small business, it gave you the opportunity to see…where you could try to improve your business,” Bost said. “It’s a business friendly provision that helps small businesses more than big businesses. If you’re a smaller business and you are doing research and development, that immediate expensing means a lot more to you than it does a larger business.”
As for the corporate tax rate, Trump has proposed decreasing the rate from the flat 21%, which was part of the tax act, to 15%.
The initial shift to 21% from a fluctuating rate brought a competitive edge to Charlotte-based businesses, Bost said. And as Metzgar said, decreasing taxes can increase economic growth.
However, Metzgar cautioned that a lower tax rate could increase national debt.
The initial tax act has already added about $1 to $2 trillion to the federal debt, according to The Urban-Brookings Tax Policy Center, a nonpartisan public policy institute.
If Trump’s plan is enacted, as is, it could add about $7 trillion to the federal debt, according to The Committee for a Responsible Federal Budget, a nonpartisan and non-profit organization that informs the public on fiscal policies.
The current federal debt is $35.9 trillion, according to the U.S. Treasury fiscal data site.
“[Trump’s plan] can increase economic growth, but you also have to fund all these government services and if you have less money coming in the way the U.S. does, it has to borrow the money,” Metzgar said. “You have to balance that. It may increase short term economic growth but as this debt grows larger and larger, at some point that’s going to become a problem for future generations.”
Possible tariff increases
Trump backs tariffs, or taxes put on imported and exported international goods, and has proposed enacting a number of tariff increases. A 10% to 20% “universal” tariff on foreign products is possible, along with a 60% tariff on goods from China, as reported by The New York Times.
Those proposed tariffs could offset the potential economic growth from his tax cut policies but could increase federal revenue, possibly limiting increases to the federal debt, according to a report released by Wells Fargo.
Most economists don’t favor tariffs, Metzgar said.
“Tariffs raise prices for consumers and increase the cost of buying a basket of goods,” Metzgar said. “If you look at general trends in trade over the last 50 years, everything’s been moving towards lower tariffs and that tends to coincide with more economic growth.”
In Trump’s previous term, trade disputes led to increased tariffs put on American goods. For example, a 25% tariff was put on American whiskey by the European Union in 2018, leading to a decline in sales, news outlets previously reported.
But Trump’s tariff plans aren’t set in stone. Bost said the business alliance is keeping an eye on possible enactments and what that means for both big and small businesses in Charlotte.
“It’s too early to tell what trade and tariff policy could look like and what it could mean to Charlotte area businesses,” Bost said.
Immigration and the workforce
While it’s unclear what Trump’s final policies will look like or when they will occur, he has said his Day 1 priority will focus on immigration that includes mass deportations, the removal of birthright citizenship, ending Temporary Protected Status and curbing legal immigration.
All of these are just proposals. However, Trump’s previous term did see a reduction in legal immigration and that reduction was a slight burden on the labor force, according to multiple policy institutes.
In North Carolina, about 68% of “foreign-born” individuals participate in the labor force, according to a 2023 report from the North Carolina Department of Commerce. That’s more than the 59.8% of “native-born” North Carolinians.
Charlotte businesses are concerned about how newcomers receive employment authorization, Bost said.
“The immigration system by which you come to the U.S. to work needs improvement,” Bost said. “If we are going to be able to supply our employers with the talent that they need to have thriving businesses in the Charlotte region, we have to have a strong immigration system that works so that people who are capable of filling the jobs, fill the jobs.”
This story was originally published November 8, 2024 at 5:00 AM.
